Big Is Better At ChevronTexaco

By

Shirley A. Lazo

Updated Nov. 5, 2001 12:01 a.m. ET

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In Barron'sMay 28 issue, Foreign Editor Vito Racanelli discussed how the benefits of Chevron's pending $45 billion merger with Texaco at the time seemed underappreciated by investors and that big is beautiful in the global energy business. Well, the pair -- now known as
ChevronTexaco
-- finalized their union October 9 and last Wednesday hiked the quarterly common dividend nearly 8%, to 70 cents a share from 65 cents, payable December 10 to investors on the books November 17. Yield: 3.16%. ChevronTexaco said its "goal is to be No. 1 in total stockholder return among our industry competitors." The shares currently change hands close to 90 on the Big Board (they've been as high as 98 and as low as 78) .

The second-largest U.S. oil company after
ExxonMobil
(and fourth-biggest in the world), San Francisco-based ChevronTexaco said pre-merger September quarter profits fell at both companies because of lower oil and natural-gas prices but that reduced demand was evident even before the September 11 terrorist attacks. However, the two beat analysts' earnings estimates because the refining business performed better than expected. ChevronTexaco said the average U.S. crude price fell more than $5 a barrel, to $23, while natural-gas prices slumped 40%, to $2.75 a thousand cubic feet.

The company expects to achieve annual savings of $1.2 billion annually, including $700 million in exploration and production efficiencies. Fahnestock analyst Fadel Gheit predicted that ChevronTexaco "is likely to achieve cruising altitude faster than any other oil merger we have seen so far."

McDonald's
expects its 2002 profit growth to be leaner than initially forecast, but it nonetheless beefed up its annual dividend and stock-buyback plan last Monday. The world's No. 1 fast-food chain, McDonald's boosted its quarterly common payout 4.7%, to 22.5 cents a share from 21.5 cents. Disbursement is slated for December 3 to holders of record November 15. This is the 27th dividend increase since the Oak Brook, Illinois-based company began making payouts in 1976.

In addition, McDonald's said it'll embark on a new $5 billion stock-repurchase program over the next four years. To date, it has bought back $4.2 billion of its shares. "We believe share repurchase is the best use of our excess cash flow after investing in McDonald's and our partner brands," said CFO Matthew H. Paull. "We are pleased that our strong financial position allows us to do both and believe it will continue to provide us with a strong credit rating and ample financial flexibility." Standard and Poor's, Moody's Investor Services and Fitch, however, disagreed and promptly lowered their ratings on McDonald's debt, saying McDonald's new buyback plan is too aggressive and will weaken its balance sheet at a time of slowing business growth.

A Dow Jones Industrials component, McDonald's share price, which has fallen by over $20 in less than two years, is hovering around its 52-week low of 24.75, set in March. Institutions own some 62% of the 1.3 billion common shares outstanding.

Jack M. Greenberg, McDonald's CEO, said "Our goal is to improve results in 2002 and put ourselves in position to return to double-digit earnings growth." The company expects next year's earnings per share to increase 5%-10% -- versus Wall Street's consensus expectation of 12% -- excluding the effect of foreign-currency translation and a special charge this quarter of $175-$200 million primarily for layoffs, consolidation and other restructuring moves. McDonald's expects to reap ongoing annual selling, general and administrative savings of about $100 million starting next year.

The company boasts more than 29,000 restaurants in 121 countries, serving 45 million customers daily. Given the weak global economic environment, it plans to add 1,300-1,400 restaurants in 2002, a number similar to this year's. McDonald's has expanded beyond the Golden Arches, operating over 1,000 restaurants under other brand names -- Aroma Caf&eacute;, Boston Market, Chipotle Mexican Grill and Donatos Pizza -- to which it plans to add 100-150 more next year.

Russ Berrie & Co.,
which designs, develops and distributes approximately 6,000 seasonal and everyday gift products to retailers worldwide, last Wednesday declared a one-time special dividend of 50 cents a share along with its regular 24-cent quarterly. The bonus will be paid on December 14; the record date is November 29.

Founder, Chairman and CEO Russ Berrie said the action was an effort "to reward our shareholders," and it reflects the company's "ability to grow, our strong balance sheet and financial flexibility," although he acknowledged that full-year 2001 sales could be down as much as 5% and net income off as much as 15% because of "the impact of the cautious retail environment and decreased consumer confidence."

Russ Berrie stock trades on the Big Board in the mid-20s; its 52-week high is 29.50. It was recently selected as one of Forbes 200 Best Small Companies in America.

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